May 01, 2021 Feature

Real Property Recording Systems and E-Recording in the Age of COVID-19

By Thomas J. Bourguignon

Imagine you’re selling a parcel of land, and, because of COVID-19, you hope to minimize your personal, face-to-face contacts. You sign a warranty deed before a notary public and deliver the original, signed, acknowledged document to the closing escrow agent via Federal Express. The closing agent then scans the warranty deed and submits an image of the warranty deed to the county register of deeds. The original paper warranty deed with your “wet-ink” signature stays with the closing agent. A deputy at the county register reviews, approves, and records the electronic image of the warranty deed, adding a recording stamp to it. An image of the recorded warranty deed is later circulated to you and the buyer and is available online for people searching documents recorded by the register of deeds. The closing agent might or might not deliver to the buyer the original piece of paper with your wet-ink signature on it.

The ESIGN Act was intended to facilitate the use of electronic records and signatures in interstate or foreign commerce.

The ESIGN Act was intended to facilitate the use of electronic records and signatures in interstate or foreign commerce.

(Source: Getty Images)

In this hypothetical, you have not had face-to-face contact with the buyer, the closing agent, or the county register of deeds. Is there any reason to be concerned about whether the warranty deed has been properly recorded? Are there heightened concerns about possible deed forgeries or claims by third parties that the electronic recording (e-recording) is not valid?

This article summarizes the evolution of traditional real property recording systems, describe the statutes that provide authority for e-recording, and summarizes how e-recording typically works in jurisdictions that allow for e-recording. Finally, this article briefly describes some potential legal issues related to e-recording.

Evolution of Deed Recording Systems

For millennia, societies have struggled to create efficient systems by which a landowner can vindicate her interest in a parcel of land in legal proceedings and convey title to a purchaser. Before the medieval era, possession of real property was the only true evidence of ownership, and real property transactions were often witnessed by large numbers of community members to give third parties notice of the grantee’s interest. Before the 16th century, property in England passed by the “livery of seisin,” in which a ceremony would occur that was “so notorious in character and witnessed by so many that need for recorded evidence . . . was thought to be wholly unnecessary.” P.H. Marshall, A Historical Sketch of the American Recording Acts, 4 Clev.-Marshall L. Rev. 56 at 56-60 (1955) (hereafter Marshall).

In the 16th and 17th centuries, a series of English statutes sought to streamline and modernize real property conveyances. The Statute of Uses, enacted in 1536, put an end to certain future “uses,” or interests, in property, allowed for more private and secret transactions, and encouraged the use of deeds in conveyances. The Statute of Enrollments, also enacted in 1536, required certification of many real property transactions so that the Crown could keep a record of landowners. The Statute of Wills, enacted in 1540, allowed a landowner to freely devise property in his will. Finally, the Statute of Frauds, enacted in 1677, required real estate conveyances to be in writing, signed by the grantor.

In 1640 the Massachusetts Bay Colony enacted the first systematic recording statute in the American colonies. It served as the model for many subsequent state recording acts. See Joseph H. Beale, Jr., The Origin of the System of Recording Deeds in America, 19 Green Bag, Vol. XIX, at 335 (1907). Other colonies and states followed suit; ultimately, every state developed a real property recording system. The real property recording laws enacted by the states have the following in common, according to an author writing in 1955: “(1) the public record is constructive and absolute notice to the world . . . of the instruments recorded, (2) . . . if the purchaser fails to inform himself of what is in the record he is negligent, and being negligent he is estopped from making a plea of ignorance, (3) recording takes place in the county where the land lies, (4) every act [in many states] protects a subsequent bona fide purchaser without notice who is not negligent, (5) before the instrument is recorded it must be acknowledged, (6) the whole deed itself must be copied upon the public record.” Marshall at 68 (citing North and Van Buren, Real Estate Titles and Conveyancing at 119, Prentice-Hall, Inc., New York (1940)).

State recording acts provide for a county office responsible for recording conveyances of real property interests. The county offices have many different names, depending on the state: county recorder, register of deeds, county clerk, and others (collectively, “county recorders”). County recorders are required to record real property conveyance instruments presented to the recorder, provided that the conveyance instrument satisfies the state recording act requirements. In general, the instrument must be in writing, the county recorder must receive the original instrument with the grantor’s wet-ink signature, the grantor’s signature must be acknowledged or notarized, the real property at issue must be properly described, the grantor and grantee must be properly identified, the document must conform to certain formatting standards, and a recording fee set by state law must be paid to the county recorder.

The primary purposes for recording systems are: (i) documenting land ownership to increase the government’s tax revenue (this is generally an older purpose of recording systems and in most jurisdictions today it is placed upon other agencies such as tax assessors); (ii) assuring title or establishing the priority of interests; (iii) providing information or notice of real property interests to third parties; and (iv) preserving not just the conveyance instruments themselves but also evidence of their authenticity and integrity.

At the time of this writing, e-recording is used to some degree in every state except Vermont. Of the 3,142 counties in the United States, about three-quarters (2,242) have implemented e-recording. See U.S. Census Bureau, Differences in Income Growth Across U.S. Counties (May 23, 2019), https://bit.ly/3bxd5N9; Property Records Industry Association, PRIA by the Numbers, https://pria.us/ (last visited Feb. 13, 2021).

Summary of Laws Enabling Electronic Recording

UETA

The Uniform Electronic Transactions Act (UETA) was drafted and approved by the Uniform Law Commission in 1999. It has since been adopted in 48 states and the District of Columbia. After UETA has been enacted by a state, private parties to a transaction may agree to create, store, or sign documents electronically, and such documents have the same legal force as if those documents had been created, stored, or signed in a tangible medium such as on paper. See UETA §§ 5 and 7.

UETA was also intended to allow government agencies to opt into using electronic records and included sections 17, 18, and 19, which were bracketed as “optional” for states to enact. Section 17 of UETA provides that the agencies of an enacting state “shall determine whether, and the extent to which, [that agency] will create and retain electronic records[.]” Section 18 provides that government agencies may determine whether they will “send and accept electronic records . . . and otherwise . . . rely upon electronic records[.]” Government agencies may make rules specifying the manner and format of electronic records, or they may add additional requirements for electronic records. UETA §§ 12(g) and 18(b).

After the passage of UETA, there was much discussion concerning whether county recorders in states that had enacted UETA, with or without sections 17, 18, and 19, would be authorized to modify their long-standing rules requiring original documents with wet-ink signatures and acknowledgments. Ultimately, the county recorders in many states proceeded with electronic recording and relied on UETA and the state’s recording act as their authority for doing so.

ESIGN Act

The Electronic Signatures in Global and National Commerce Act, Pub. L. 106-229, 114 Stat. 464, 15 U.S.C. § 96 (ESIGN Act), was enacted June 30, 2000. The ESIGN Act was intended to “facilitate the use of electronic records and signatures in interstate or foreign commerce.” ESIGN Act Preamble. In language similar to that of UETA, the ESIGN Act provides, generally, that a signature or contract affecting interstate or foreign commerce “may not be denied legal effect, validity, or enforceability solely because it is in electronic form[.]” ESIGN Act, § 101(a). The ESIGN Act requires consumers or parties to a transaction to consent to the use of electronic records or electronic signatures. Further, the ESIGN Act expressly does not preempt other state or federal laws with contradictory provisions and does not supersede any requirements by state or federal agencies that might prohibit the use of electronic records or electronic signatures.

The ESIGN Act did not directly affect the ability of county recorders to accept electronic recording. It did, however, help to clarify that electronic records or signatures prepared by lenders (who are often located in states other than where the real property in a transaction is located) would not be invalidated under federal law.

URPERA

Because of uncertainty as to whether UETA provided all the authority needed for county recorders to allow for e-recording, the Uniform Law Commission drafted and approved the Uniform Real Property and Electronic Recording Act (URPERA) in 2004. As of the date of this writing, it has been adopted in 35 states and the District of Columbia.

URPERA expressly provides for the electronic recording of documents by county recorders. Section 3(a) of URPERA provides that if state law requires, “as a condition for recording, that a document be an original, be on paper or another tangible medium,” such requirements are satisfied by electronic documents. Section 3(b) provides that electronic signatures satisfy state law requirements that documents be signed as a condition for recording, and Section 3(c) provides that if a signature must be notarized or acknowledged as a condition for recording, an electronic signature that has been properly acknowledged satisfies such requirements. Section 4 of URPERA expressly authorizes county recorders to “receive, index, store, archive, and transmit” electronic documents.

How E-Recording Works

Traditional recording involves parties to a transaction or their agents, such as escrow agents or attorneys, delivering original, wet-ink-signed documents to a county recorder, but e-recording tends to involve one additional step: the presence of third-party companies such as CSC, Simplifile, and e-Docs Solutions, which are vendors that facilitate e-recording. The vendors provide software and support to county recorders.

Agreement Between County Recorder and Vendor

When a county chooses to allow for e-recording, the county typically enters into a written memorandum of understanding (MOU) with one or more vendors. The MOU will specify which aspects of the e-recording process will be handled by the county recorder and which aspects will be handled by the vendor. The MOU might include provisions about which party bears liability for errors or omissions.

Recording a Document

The Property Records Industry Association (PRIA) identifies three models for e-recording. In Model 1, “recordings are typically scanned paper with no index data accompanying the images.” In Model 2, “recordings are scanned paper with index data included.” In Model 3, “recordings are electronic documents (they were never in paper form) with index data embedded into and extractable from the document.” Property Records Industry Association, How to Get Ready for Electronic Recording white paper, (2009), https://bit.ly/3tBHH7.r.

To e-record a document, the submitter—a party, escrow agent, or attorney—must first set up an account with a vendor that facilitates e-recording in that county. The vendor might require a submitter to enter into an MOU. Once that process is complete, the submitter submits an image of a signed document by uploading it to the vendor’s website, along with payment of the recording fee required by the county recorder and payment of the vendor’s fee for its e-recording service. In many cases, the submitter needs to represent that it has the original signed document. In Model 2 or Model 3, the submitter also supplies information about the document such as the document type and the names of the parties.

The vendor’s software then transfers the document to a document queue at the county recorder. The county recorder will receive the document electronically from the vendor, with time-stamp information for when it was submitted. The county recorder will then review the document to confirm that it meets statutory requirements such as valid signature and acknowledgment, identification of the parties, and identification of the real property being affected.

If the document does not satisfy statutory requirements, the county recorder will reject it and inform the submitter that the document has been rejected and the reasons for its rejection. If the document is approved for recording, the county recorder will record the document, adding a recording stamp with the date and unique filing numbers to the document.

The time and date of recording usually correspond to the timestamp placed on the document at the time of its transmission from the vendor to the document queue at the county recorder. Typically, a county recorder will complete its review and approval or rejection of a document within an hour of receipt of the document.

Once a document has been approved, recorded, and indexed in the county records, it will be sent back to the submitter electronically, notifying the submitter that the document has been recorded, and frequently including an image (in a format such as .pdf) of the recorded instrument.

Legal Issues Related to E-Recording

Validity of a Conveyance Instrument

In general, a conveyance instrument is valid between the grantor and grantee even if it is not recorded. By recording an instrument with the county recorder, the instrument becomes valid as against all third parties, subject to all previously recorded instruments. In theory, there is no reason why an instrument that has been e-recorded should fail to provide constructive notice to third parties.

County’s Authorization to Implement E-Recording

URPERA appears to provide clear authority for county recorders to e-record documents. For states that have enacted UETA but not URPERA, however, questions might arise as to whether the combined effect of the state recording act and UETA allow for e-recording. This further depends on whether the state has enacted the optional sections 17, 18, or 19 of UETA, which have provisions regarding government agencies. Also, some state attorneys general have written legal opinions interpreting the state recording act concerning e-recording.

Forgery

As stated above, one of the purposes of a recording system is to maintain evidence of the authenticity of instruments of conveyance. It remains to be seen whether there will be more instances of forgeries with e-recorded instruments, because the county recorder does not directly review an original instrument with a wet-ink signature.

Errors in Recording

Even though county recorders enter into MOUs with vendors that might include provisions about the liability accepted by the county recorder and by the vendor, still there will likely be challenges from individuals claiming they have been damaged when instruments are improperly recorded or improperly indexed such that third parties do not have notice of previously recorded instruments.

Recording Paper Photocopies

Some might argue that, if an electronic image of an instrument can be considered an original instrument for purposes of satisfying state recording acts, then a paper photocopy of an instrument should also constitute an original instrument.

Model 3 and State Recording Acts

PRIA’s Model 3 recording system envisions a document created electronically, signed electronically, and submitted electronically to a county recorder, perhaps without the document ever having been printed on paper. Under Model 3, there is no “original” document different from the electronic image of the document. Some state recording acts, enacted long before e-recording, might have requirements that implicitly or explicitly require the existence of paper documents with wet-ink signatures. Although UETA was intended to allow for Model 3 documents to be valid and enforceable, those documents might not be valid or enforceable unless the state recording act is also amended.

Recording Order and Time of Acceptance

Because recording an instrument provides legally enforceable priority against subsequently recorded instruments, parties have a strong motivation to record promptly and win the proverbial race to the courthouse. County recorders might be subject to challenge if they organize their workflow in a manner that prioritizes either e-recording or traditional, in-person recording, such that a specific instrument might arrive at the office of the county recorder first in time but be recorded later than an instrument that arrived by different means.

Conclusion

Because e-recording has the potential to make transactions quicker, more efficient, and more socially-distanced, it has already been widely adopted across the United States. The COVID-19 pandemic will likely cause even more submitters and county recorders to elect to use e-recording to avoid unnecessary in-person contacts; in fact, some county recorders are not admitting submitters to hand-deliver documents during the pandemic. Practitioners should be aware of the state recording acts and any relevant electronic document acts such as UETA or URPERA.

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By Thomas J. Bourguignon

Thomas J. Bourguignon is an associate at Maclay Law Firm in Missoula, Montana.